By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
AI Road Kill Ahead
Please click here for a chart of Chegg stock (CHGG)
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of CHGG is being used to illustrate the point.
- The chart shows when Chegg reported earnings. Earnings were good. Based on the earnings and the positioning, the stock should have gone up.
- The chart shows that instead of going up, the stock has fallen by about 46%.
- Chegg is an edtech company that helps students with homework. The company indicated that new student growth is slowing as more and more students are preferring to seek help from ChatGPT instead of from the company’s products.
- We had previously shared with you that the golden age of AI is starting. Those with knowledge and expert guidance will make a fortune. But the momo crowd and others who are not highly analytical will likely lose their shirts. CHGG proves the point.
- Recently, the momo crowd has been aggressively buying CHGG stock. The reason they were aggressively buying CHGG stock was that CHGG had announced that it was integrating ChatGPT with its offerings. All the momo crowd needed was to hear the buzz word ChatGPT, and they bought the stock.
- In contrast, the last post on CHGG from The Arora Report was that the prior buy signal was canceled as the time stop hit and there was no fill. Moreover, the buy zone was significantly lower than where the stock was trading at the time of the signal.
- Now, the momo crowd has lost about half of its investment in CHGG.
- CHGG has become the first popular, good company to lose about half of its value due to ChatGPT.
- There will be many opportunities to profit from artificial intelligence on the long side. However, there will also be many opportunities to profit from artificial intelligence on the short side. If you have been thinking about learning to short sell so that you can make money irrespective of market conditions, AI has given you another great reason to get started. The best way to start learning is to subscribe to ZYX Short but not undertake any trades for several months until you become comfortable.
- The FOMC meeting is starting today.
- The momo crowd is counting their chickens before they hatch. The narrative is that even if the Fed raises rates, it will be the last rate hike, and after this rate hike, the Fed will rapidly cut rates. There will be no economic slowdown. Earnings will rapidly increase because of AI as AI will allow corporations to layoff lots of people and reduce costs.
- Momo gurus are distorting history to claim that the last rate hike will coincide with the start of a new bull market.
- In The Arora Report analysis, the foregoing narrative is wrong on many levels. For example, if AI causes millions of people to be laid off, how will the economy be strong?
- Debt ceiling drama has shifted into a higher gear. Treasury Secretary Janet Yellen is saying that the government will run out of money on June 1. This is a lot sooner than expected.
- The last time a debt ceiling crisis occurred was in 2011. Since then, both Republicans and Democrats have managed to avoid a crisis at the last minute. In 2011, the U.S. credit rating was lowered by S&P.
April CPI came at 0.7% vs. 0.9% consensus. Core CPI came at 1.0% vs. 1.1% consensus.
The positive sentiment from lower inflation was countered by a survey showing that 25% of eurozone banks have tightened lending standards and 40% of the banks reported falling demand for credit from businesses.
The Reserve Bank of Australia, in a surprise move, increased the key interest rate. This is generating negative sentiment across the globe.
Morgan Stanley (MS) is laying off 3,000 people as deal making slows. Citigroup (C) is also talking about layoffs.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is 🔒 stocks in the early trade.
The momo crowd is 🔒 in gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Coinbase (COIN) CEO and other insiders are being sued for selling $1B worth of stock on insider information. Insiders sold their stock weeks before a big fall.
Bitcoin has given up its April gains.
Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking down, and bonds are ticking up.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1996, silver futures are at $24.93, and oil futures are at $74.68.
S&P 500 futures are trading at 4175 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are down 90 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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